Duration - minimize the variance of a portfolio of bonds...

Duration • Duration is a measure of the average life of a debt instrument on a PV basis. • A zero coupon bond that matures in n years has a duration of n. • A coupon bond has duration < n because payments are made before maturity. • Financial institutions often try to match the duration of their assets to the duration of their liabilities. • Duration is also useful for hedging. 1

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